Dwight Watt Internet Article #63


#63 - Tax cuts, refunds, and lock boxes 2/28/2001

#63 - Tax cuts, refunds, and lock boxes

President Bush has proposed a $1.6 billion tax cut over the next ten years as he campaigned to do. During the same period the predictions are currently for a $5.6 billion surplus. His proposal is for tax rate cuts for all tax payers (not citizens, but those who pay income taxes). The end result would be that the lowest income paying income taxes would rise.

Those paying the most taxes would receive the largest tax cuts. There would be a few special groups who would receive extra tax breaks. The three major groups would be the marriage penalty would be further removed, therefore benefiting married couples in which both work (primarily middle class and lower middle class families), the child deduction would be increased thereby reducing taxes for families, and last the estate tax would move toward elimination (allowing individuals to better decide how they want to distribute their money that has already been taxed without interference from the government (they can still give it to the federal government or charity if they want).

Past tax cuts have demonstrated that a tax cut will result in increased revenues for the government. In the 1981 Reagan had a tax cut reducing tax rates about 25% approved by Congress. Beginning at that point interest rates began their fall from the record heights they had climbed to in 1980, revenues for the government grew, and the economy entered a long expansion. In the early 60s Kennedy pushed thru a set of tax cuts. The revenues for the government grew and again the nation went thru a long economic expansion.

There is a concern on many that a tax cut will bring the deficits back on. History shows the question is not the tax cut, but what the expenditures are. The big deficits in the 80s (which followed record deficits in the late 70s under a Democrat President and Congress) were not caused by the tax cuts. Expenditures grew faster than revenues grew. If the tax cut had caused it, then revenues would not have grown and expenditures would not have had record growth.

The Democrats present several different proposals. The first is to lower the amount because of deficit concerns. Very few governments, businesses or individuals are not going to have some type of deficit as we see a deficit in the federal government. State and local governments sale bonds incurring debt (spending more than they take in this year) and yet are considered to balance the budget. The federal government is now paying all expenditures each year with their balanced budget, even capital improvements.

Their second proposal is to skew the tax cuts to the lower incomes. We must remember that we skew our tax rates to higher rates on the higher incomes, so only logical that when you cut taxes those who pay most, get the most reduction. This proposal is really income redistribution not tax cuts. We already do this on our tax books thru the Earned Income Credit and other credits where many lower income people actually receive money from income taxes instead of paying (in most cases in plain English this means their refund is bigger than amount taken out during the year). This is also a socialist approach to government and we basically have built pour nation against this. On a personal note I have a real problem with some business executives and some athletes making this huge 7-8 digit salaries per year while the person cleaning their work area (office or locker room or playing field) barely gets a salary in the 5 digits.

The third proposal by the Democrats is to lower payroll taxes, primary being the Social Security (FICA) tax. For the political party that campaigned last year on putting Social Security in a lock box, how does this help? If Social Security is already in financial trouble, how would reducing income to it help? A better proposal in this case in my opinion would be to get rid of the upper limit on incomes subject to Social Security tax, no longer having the limit at about $65,000 as it is now. At the same time you could then reduce the overall rate and benefit the lower incomes and still have the same revenue coming in and make it a fairer tax instead of a regressive tax.

Dwight




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Copyright 2001.